Signs of the free market and its characteristics, market mechanism and its functions. What are the main features of a free market?

The free market is now mainly viewed from the point of view of libertarian philosophy. But what does he represent in the ideal, and does he exist now on earth at least somewhere? And if you are interested in the signs of the free market and its characteristics, then you are reading the right article now, in which there are answers to all your questions.

What is a free market from an economic point of view?

A free market is a market that is not subject to any external interference (including no government regulation). The entire function of the state is limited to the protection of property rights, and prices are set solely on the basis of supply and demand for products, as well as agreements between producers.

But a rather significant problem is the realization of such an ideology. The reasons lie in the specifics of doing business in different countries, political arrangements, the availability and features of the functioning of market mechanisms. And while it remains to be seen that the free market is nowhere a dominant ideology in the economy. Why is that?

Characteristics of a free market

In an ideally free market, the law of supply and demand prevails. It affects prices, keeps the balance and balances the demand for products. At the same time, the products are distributed by the customers themselves, taking into account their own preferences. The behavior of the free market in the presence of the interaction of several agents becomes nonlinear. Examples of non-linear nature of interactions are speculative bubbles in the real estate market, in the banking sector and herd behavior on stock exchanges, in stores.

In practice, we can say that a free market is an idealized abstraction. But the theory itself can be useful during the analysis of real markets and the mechanisms of their interaction. The free market theory is also used when analyzing the shadow economy and the black market. Thus, some economists point to a number of processes (such as the illegal sale of narcotic drugs) that can safely function without government intervention.

Market mechanism

Under the market mechanism implies the mechanism of interaction and the relationship between the various elements of the market: supply, demand, price and competition. It acts on the basis of the laws of changing demand, supply, equilibrium price, competition between economic entities, utility, value and profit. The main are demand and supply, because it is their interaction (as theorists say) that determines what will be produced and at what price to realize. And the main features of the free market: the market mechanism and its functions, because they allow free development of the economy without any restrictions.

Prices, in turn, are viewed as an important market instrument that provides its participants with the information necessary to make decisions about increasing the production of goods or reducing it. Information is what accelerates the flow of cash flows between industries.

Functions of the market mechanism

What is a market mechanism is understandable. And what is its functional? What does it influence? Functions of the market mechanism:

1. Informational. Information on the state of affairs regarding the need to manufacture products or reduce the size of its manufacture, as well as the transfer of data about where it is most profitable to implement it.
2. Intermediary. The market mechanism makes it possible to create a situation that will maximally satisfy both the producer of the product and its consumer. There is a constant search for the golden mean: producers are looking for a price that will allow them to effectively sell their products, and consumers - products that will satisfy them in quality and price.
3. Pricing. Since the producer must have income from his activities, but not lose to competitors, the prices should be within certain limits.
4. Regulatory. If any product is produced too much, it can affect its price downwards or force the enterprise to reduce the volume of production.
5. Stimulating. As the specter of competition constantly hangs over the manufacturers, so as not to lose their market share, they are obliged to develop better products, investing their money in new developments and improving their products.

How is the market determined to be free?

What are the main features of a free market that will allow you to say exactly that it is he, and not another form of organization of economic activity? Speaking of a free market, now they mean freedom from the influence of the state. As parameters that determine the level of freedom, usually called fifty different parameters. In order not to hammer everyone's head, the article will list only those that are not currently controversial. So, the sign of a free market is:

1. Trade policy of the state.
2. Monetary policy of the state.
3. The level of government intervention in the economy.
4. The size of the government's financial burden.
5. The size of the flows of capital, foreign investment and their direction.
6. What is meant by private property and how it is spelled out in state laws.
7. Regulation of economic processes in society by the state.
8. The situation of banks and the financial sector.
9. The situation with wages, prices and purchasing power.
10. Informal economic activity.

Despite the fact that the idea of prosperity of economically free states is very popular, in practice, there are quite significant refutations of this approach. Thus, studies of a number of scientists have established that there is no relationship between the political system and economic growth, and the situation depends solely on people.

Conclusion

Some theorists consider the free market a natural form of social self-organization, believes that it will arise in any society where there will be no barriers. A relative consensus of opinions about the operation of a free economy is observed regarding the time of the late Middle Ages and the beginning of the Renaissance. Be that as it may, to see now the free economy is problematic at first hand, because although the principles of organizing economic activity in some countries have signs of a free market, there is as yet no full implementation of this regime for the functioning of the economy on the planet.